Central Bank chief says may hike rates in November

MANILA -- The Bangko Sentral ng Pilipinas (BSP) on Thursday kept its benchmark target reverse repurchase (RRP) rate steady at 6.25 percent even as inflation quickened in August.

Inflation quickened to 5.3 percent after a six-month decline on the back of rising oil and crude prices.

• Inflation quickens to 5.3 pct in August as rice, fuel costs rise

Inflation has averaged 6.6 percent from January to August.

BSP Governor Eli Remolona said government still expects inflation to return its target range of 2 to 4 percent in the fourth quarter.

He noted, however, that their latest projections show a slightly higher inflation path.

"Average inflation is now seen to reach 5.8 percent in 2023 from 5.6 percent previously, while the forecast for 2024 likewise rose to 3.5 percent from 3.3 percent," he said.

Remolona said fare and power rate hikes may drive inflation upward.

He noted, however, that core inflation, which strips out volatile food and energy items, has moderated.

Remolona admitted that he is considering hiking interest rates in November.

"How big it will be will depend on the data, how bad the data is with respect to inflation," he said.

The official also said rate cuts are off the table for 2023.

But when asked when rate cuts may come next year, when inflation is expected to ease, Remolona said, "For now, we see a kind of balance between demand and supply. So we’re close to the right level for interest rates."

"Whether there will be a cut next year, I think will depend on really bad news when it comes to, specially when it comes to output," he said.

BDO Capital Ed Francisco said he hopes rate cuts may come by the middle of next year.

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"When we were starting the year, we were talking to our economists and comparing notes with the other banks, our optimistic scenario was end of this year, third or 4th quarter we would start lowering rates already," Francisco said.

"As you heard from Governor Eli, and from the Fed, it looks like maybe the earliest now, parang maybe the optimistic scenario is earliest is second quarter of next year is when they will start rate-cutting already," he noted.

"I guess the pessimistic scenario is that the global economy will still be in the doldrums, the Philippines for example will not be able to recover yet, bring down inflation, and it will be postponed till the end of 2024. So parang kumbaga, from the original numbers, it’s already delayed 6 months," he added.

"I'm still hopeful that half of mid year, well start lowering rates, because that’s a very good signal for the stock market and even for the businesses in general," he said.

• BSP likely to keep benchmark rate unchanged in near-term: official
• ADB warns vs risks from high interest rates

High interest rates have affected private consumption and investment, leading to a slower-than-expected GDP growth of 4.3 percent in the second quarter. This was slower than the 6.4 percent expansion in the first quarter and 7.5 percent a year ago.

The weak second-quarter growth dragged the first half average to 5.3 percent.

• Philippine GDP grows 4.3 percent in 2nd quarter of 2023

Economic managers earlier said GDP growth should hit at least 6.6 percent in the second half to achieve the country's 6 to 7 percent target for 2023.

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